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california legislation > AB 18

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Date of Hearing: May 4, 2011

Julia Brownley, Chair
AB 18 (Brownley) - As Amended: April 27, 2011

: School-based financial reporting system

SUMMARY : Restructures, commencing in the 2015-16 fiscal year,
California's system for allocating state funding for public
schools. Specifically, this bill :

1)Makes legislative findings and declarations related to:

a) The complexity, illogic, and lack of transparency in
California's current education finance system.
b) The lack of flexibility, high compliance costs, and
revenue inequities facing California schools and districts.
c) The lack of data, effective data systems, and ability to
use such data - all of which are shown by research to be
important to successful schools and districts.
d) The specific lack of information on and understanding of
how money is allocated to schools within any school
e) The lawsuits, currently faced by California, which claim
that the state's system for funding public education is

2)States legislative intent to implement comprehensive school
finance reform that:

a) Builds on previous research, supports student
achievement and provides appropriate incentives.
b) Establishes simpler allocation formulas that provide
base funding along with an amount that is tied to the
specific needs of pupils.
c) Improves rationality and equity in the system, so that
all pupils are prepared for college, career, and
d) Supports accountability and local flexibility through
improved fiscal transparency and reporting, and supports
ongoing improvement and reform.
e) Holds local education agencies harmless by transitioning
to the new system as new funds become available.

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3)Consolidates, commencing in the 2015-16 fiscal year, the
funding for 25 existing revenue limit add-ons and categorical
programs (see Table 1 in the Comment section of this analysis
for additional detail) into school district Total Revenue
Limits as base funding, and provides this funding on the basis
of average daily attendance (ADA).

4)Consolidates, commencing in the 2015-16 fiscal year, the
funding for eight existing categorical programs (see Table 2
in the Comment section of this analysis for additional detail)
into a new Targeted Pupil Equity Grant for the purpose of
creating weighted pupil funding, and provides this funding to
school districts and charter schools on the basis of the
number of English learner and economically disadvantage

5)Requires that school districts and charter schools use funding
received in the Targeted Pupil Equity Grant as a supplement to
funds otherwise provided for English learners and low-income
pupils, and for any educational purpose that provides
instruction or support services, with the goal of improving
the academic performance or workforce preparation, to those

6)Consolidates, commencing in the 2015-16 fiscal year, the
funding for nine existing categorical programs (see Table 3 in
the Comment section of this analysis for additional detail)
into a new Quality Instruction Grant as a restricted portion
of base funding, and provides this funding to school districts
and charter schools on the basis of ADA.

7)Requires, unless otherwise prohibited under federal law or
specified in these provisions, school districts and charter
schools to use funding received in the Quality Instruction
Grant, for any of the following purposes:

a) To reduce class sizes.
b) To provide professional development training to
teachers, administrators, and staff on any of the following
i) The state common core content standards adopted by
the State Board of Education (SBE).
ii) The curriculum frameworks adopted by the SBE.
iii) The English language development standards adopted
by the SBE.

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c) To provide leadership coaching and individualized
support to school site staff and administrators in order to
support staff in becoming instructional leaders and
d) To provide teacher, administrator, and staff mentoring
or coaching in order to support beginning teachers with the
goal of increasing academic achievement.
e) To establish teacher recruitment programs that provide
professional development assistance to paraprofessionals in
order for them to obtain a teaching credential.
f) To establish intern programs to provide an alternative
route for individuals to obtain a teaching credential.
g) To provide support for beginning teacher support and

8)States legislative intent to:

a) Provide an inflation adjustment and an equalization
adjustment to the per pupil amount calculated for the
Targeted Pupil Equity Grant and the Quality Instruction
Grant in any fiscal year in which funds are available.
b) Use the augmentation to Total Revenue Limits in 3)
above, in conjunction with other base funding provided to
school districts, for any educational purpose necessary to
maintain and improve the educational services provided to
all pupils in the district.
c) Use the Targeted Pupil Equity Grant, in conjunction with
funding provided to school districts and charter schools
for all pupils, to appropriately weight educational funding
so as to provide additional resources for the instruction
of English learners and low-income pupils and to enable
school districts and charter schools to direct resources
toward improving the academic performance of those pupils.
d) Use the Quality Instruction Grant, in conjunction with
other base funding provided to school districts and charter
schools, to maintain and improve high quality instruction
in all classrooms and to enable school districts and
charter schools to direct resources toward improving the
academic performance of all pupils by supporting teaching
and instructional leadership.

9)Specifies that nothing in these funding provisions authorizes
a school district, which receives funding on behalf of a
dependent charter school, to redirect this funding for another
purpose unless otherwise authorized.

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10)Requires the Superintendent of Public Instruction (SPI) to
study and report on:

a) Modifications to the standardized account code structure
(SACS) to provide school-level reports on revenue and
expenditures so as to facilitate easy comparisons across
schools and districts, including comparisons of school,
district, and statewide demographics and academic
performance, and data on program-level expenditures.
b) An evaluation mechanism to facilitate continuous
improvement, maximum transparency, and accountability of
the primary funding structures, as well as a consistent
process to evaluate the effectiveness of any specific
programs that are funded separately.

11)Requires the Superintendent to present the findings and
recommendations from the study in 10) above to the Legislature
and the Governor on or before December 1, 2012.


1)Provides for revenue limit funding for school districts that
is based on a per pupil base revenue limit multiplied by
average daily attendance (ADA) reported by each district in
the last attendance report of the fiscal year, for the current
or prior fiscal year, whichever is greater.

2)Defines base revenue limit for any school district to be equal
to the prior year amount adjusted to account for
cost-of-living increases and any other adjustment specified by
statute (e.g., adjustment implementing revenue limit
equalization by increasing the base revenue limit for some set
of low revenue limit districts).

3)Adjusts revenue limit funding further by making adjustments,
as specified in statute, for individual programs or district
characteristics; these adjustments are collectively referred
to as revenue limit add-ons.

4)Establishes and funds categorical programs that focus
resources and/or compliance requirements on specific classes
of students or schools, or on specific uses of funds,
identified by the Legislature as priorities.

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5)Consolidates a number of historical categorical programs into
a smaller set of block grants, where a block grant gives
funding recipients the flexibility to spend the funds across
any of the previously individual programs consolidated into
that block grant.

6)Allows for limited transfers of funds between specific
categorical programs.

7)Provides for temporary flexibility to spend the funds
appropriated for most categorical programs in order to relieve
local budget pressure created by the current economic

8)Requires that each school district produce an annual school
accountability report card for each school in the district,
including various specific data elements describing the school
and its condition.

9)Requires the development of the California Longitudinal Pupil
Achievement Data System, and authorizes the use of SACS,
developed by the California Department of Education, to
account for revenues and expenditures.


COMMENTS : The "Getting Down to Facts" studies published in 2007
described California's education finance system as a "complex
and irrational finance system", where the funding available to
each school district is largely related to funding in the 1970s
(revenue limit funding) combined with a complex system of
categorical grant programs. The studies suggested that under
this system, similar districts receive substantially different
revenues per pupil, and differences in student needs, based on
demographic or learning characteristics, across districts are
not reflected in funding levels. Also, the administrative
burdens imposed on both state and local education agencies by
such a complex system of funding and associated compliance
requirements is both substantial and costly. In addition, the
studies point out that the current finance structure was put in
place before the advent of the current state and federal
accountability systems, and has never been updated to align with
those systems; this means that the current funding and related
compliance system tracks inputs in the production of education
services, while the accountability systems focus on outcomes.

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If the focus is now on holding school districts responsible for
outcomes, the question clearly arises concerning why the state
would continue to focus and restrict funding and compliance
based on inputs. Though the current categorical flexibility
granted through the budget process alleviates some of this
problem, that flexibility is a medium-term fix granted to help
local educational agencies remain solvent amidst large
recession-related budget cuts and is scheduled to end following
the 2014-15 fiscal year.

The "Getting Down to Facts" studies also recommended areas that
warrant the focus of policy makers. These areas include the
"relaxation of state regulations and restrictions on categorical
funds in order to allow greater local flexibility for resource
allocation, including the flexibility to make more effective use
of instructional time and possible expansion of that time
especially in schools with high concentration of disadvantaged
students, and the simplification and rationalization of school
finance formulas to promote better strategic planning for the
best use of resources by local school officials." Clearly these
two recommendations could be served by a school finance reform
proposal that consolidates categorical funding programs,
allocates that funding in a manner that accounts for differences
in student need, and relies on increases in funding that will
occur in the future to fuel the transition to the new system.

The "Getting Down to Facts" studies implicitly provided broad
suggestions for how the system could be changed. Many of those
broad suggestions were further debated and developed into more
concrete policy proposals by the Governor's Committee on
Education Excellence and in subsequent research. Individual
researchers (e.g., Bersin, Kirst and Liu), including those at
the Public Policy Institute of California (Sonstelie, Rose,
Weston, et al), have gone further in terms of developing more
specific proposals for education finance reform or developing
tools that can be used to analyze such proposals.

At least four different types of proposals for school finance
reform have been discussed in this research and/or enacted by
the Legislature over the last five Legislative Sessions.

Funding Flexibility simply converts categorical funds (i.e.,
restricted accounts) into discretionary or unrestricted funding,
allowing school districts freedom in making expenditures. The
obvious example of this approach is the current budget

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flexibility provided for approximately 40 categorical programs,
where a set of previously restricted funding streams is now
provided as a single allocation of unrestricted funds. On a
smaller scale, actions taken to allow specific carryover
balances of restricted accounts to be available for expenditure
in a discretionary manner has also provided additional
flexibility. As a long-term proposal, funding flexibility
suffers from its lack of connection to the state's funding
priorities, and may mean (as has been the case in some school
districts since the implementation of the current flexibility
provisions) that programs traditionally offered in individual
school districts are dramatically cut or closed as a result of
local governing board decisions. However, this result may also
be seen in a beneficial light, in that flexibility allows local
decision makers the ability to tailor resource use to fit local

Pupil-Weighted Funding has been discussed widely and positively
by the Getting Down to Facts project, the Governor's Committee
on Education Excellence, previous and subsequent researchers,
and this Committee's School Finance Working Group convened
during the 2006 legislative year. The primary attraction to
this model is that funds are targeted at specific pupils on the
basis of need. For example, most would agree that a English
learner student requires additional educational services and is
more costly to educate than a non-English learner student, all
else being the same; under a pupil-weighted approach a school
district would receive a larger allocation related to that
English learner student than it would for a non- English learner
student. A district would still receive some base amount equal
to that received for every other student, plus an augmentation
related to those English learner needs. Other need-related
characteristics would be treated similarly, and the total amount
of funding going to a given district would be the sum of the
amounts provided on the basis of each of its individual
students. The phrase "pupil-weighted" comes from the
augmentations for these characteristics; the English learner
student would receive the base amount increased by some
legislatively determined weight (e.g., 1.05, 1.1) to reflect the
costs due to that students extra need and cost. Many states use
some variant of this approach to distribute funds to districts
based on the number and types of students in attendance. This
is an attractive funding model in that it matches revenue to
need. One criticism of this approach is that it leaves the
question of expenditure restrictions unanswered; in other words,

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this model allocates funds, but does not necessarily restrict
the expenditure of those funds to the targeted pupils. That
shortcoming, however, is easily eliminated by specifying
restrictions on the expenditure of the funds.

Clustered Block Grants were enacted by the legislature in 2004.
Under this approach the funds allocated for categorical programs
focusing on a similar sub-population or on similar activities
are clustered together to create one larger grant, however, the
individual programs are still retained within the single grant.
In other words the revenue is consolidated and some flexibility
is given on the expenditure side, but that flexibility is
limited to expending the consolidated funds only on the programs
that exist within the cluster. An example of this was created
by AB 825 (Firebaugh), Chapter 871, Statutes of 2004, in the
form of the School Safety Block Grant that allowed the
consolidated funds to be spent on 6 previously existing school
safety programs. This approach reduces administrative burdens
on districts, increases transparency and maintains the spending
priorities of the Legislature, but it does not provide the level
of flexibility that would be necessary to allow LEAs to create
educational programs that match the needs of their student
populations, unless those needs happen to match the programs
previously created and now clustered by the state.

True Block Grants go an additional step beyond the clustered
approach, and provide an effective way to distribute state funds
for activities where the state seeks some broad restriction on
the use of funds, but where increased flexibility, transparency,
and fairness are desired. In a true block grant, the funding
for broadly similar programs is bound together as a single
funding source, and expenditure of those funds would be allowed
on a broadly defined, but related, set of activities. For
example, the School Safety Block Grant created by AB 825 allowed
the consolidated funds to be spent on 6 previously existing
school safety programs, but in a true school safety block grant
those funds could be expended on school safety very broadly
defined and thus would place greater discretion in the hands of
the governing board of each school district.

According to the author, "AB 18 is a vehicle for comprehensively
reforming the state's public school finance system. The first
step in this reform process is to simplify the number of funding
streams provided to school districts and to provide continuing
flexibility in the expenditure of those funds." In implementing

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this simplification, this bill employs three of the four
approaches discussed above.

This bill, commencing at the end of the current budget
flexibility provisions, treats current categorical funding
streams in one of four ways:

1) Categorical funding and current revenue limit add-ons
that are provided in a broad-based manner for programs and
that are part of the base educational or operational
program of the district (see Table 1) are consolidated into
an add-on to revenue limit funding for school districts and
thus provided on a per ADA basis; this funding becomes
discretionary for the school district and provides a
greater level of base funding. This Funding Flexibility
approach consolidates 25 existing revenue limit add-ons and
categorical programs, totaling approximately $3 billion in
funding in 2010-11, and provides expenditure flexibility to
school districts.

2) Categorical funding currently targeted to English
learner or economically disadvantaged pupils (see Table 2)
is provided to school districts and charter schools in the
Targeted Pupil Equity Grant, and is provided on the basis
of the number of EL and economically disadvantaged pupils;
this funding is required to be expended on services to
support learning and improved academic performance for
those students. The bill states Legislative intent to
provide for future cost of living and equalization
adjustments to this funding, as funds are available in
future years, and establishes this grant as the weighted
targeted funding in what can be viewed as a Pupil-Weighted
Funding approach. Funding provided in this grant,
approximately $2.3 billion in 2010-11, comes from eight
current categorical programs.

3) Categorical funding currently provided for class-size
reduction and staff professional development (see Table 3)
is consolidated into the Quality Instruction Grant and is
provided on the basis of ADA; this funding is required to
be expended on class-size reduction, professional
development, or in support of leadership coaching and
individualized support, teacher/administrator/staff
mentoring or coaching, teacher recruitment programs, intern
programs, or support and assessment for beginning teachers.

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The bill states Legislative intent to provide for future
cost of living and equalization adjustments to this
funding, as funds are available in future years. This True
Block Grant consolidates nine existing categorical
programs, totaling approximately $1.4 billion in funding in
2010-11, and provides expenditure flexibility within a
broadly defined restriction.

4) This bill also leaves some funding streams outside of
the proposal. Primarily this includes funding for special
education, funding that has interactions with federal or
other state programs or funding sources, funding for
programs operated by entities outside of the traditional
educational system (e.g., Indian Education Centers),
funding for county offices of education, funding for career
technical education, and funding for capital purchases.

Historical discussions concerning the transition from one school
funding model to another have generally focused on making the
change in one step, while sorting out those winners that gain
funding and those losers that receive less funding; that
traditional approach then either holds the losers harmless or
simply lets the losers suffer from the loss of funds. The
former result is often, and certainly would currently be,
prohibitively expensive, and the latter approach is particularly
unattractive when, as research indicates is the current case,
all California school districts are dramatically under-funded.
Thus these traditional approaches would either count on funds
that the state does not now have, or takes funding away from
under-funded school districts to give to other school districts
in a zero sum game. According to the author, "AB 18 provides a
transition over time by allowing the Legislature to direct
funding toward increasing the weight given to the targeted
funding, or providing COLA or equalization to any of the funding
pieces, as new funding becomes available. In this way districts
will continue to receive their pre-transition levels of funding
and no district would lose funding as a result of the move to
the new system."

This proposal, since it enacts changes commencing in the 2015-16
fiscal year, would also serve to eliminate the uncertainty that
school districts are facing with respect to the lack of an exit
strategy from the current budget flexibility provisions. At
this point in time, budget planning at the local level beyond
2014-15 is impossible in that it is unknown whether some

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flexibility provisions will continue or whether categorical
funding will return to its pre-flexibility state. Enactment of
this proposal would constitute something of a compromise between
continuing full flexibility and full return to restricted
categorical funding.

The author describes this version of the bill as a "first step."
As the bill moves forward, Committee staff recommends that the
author consider a number of unanswered questions, including:

1)What happens to the statutory requirements and restrictions on
current categorical programs?
2)How is charter school funding treated?
3)How is the weighting of the Targeted Pupil Equity Grant
ultimately determined?
4)Are there any unwanted incentives created by the transition to
this funding model?

The tables below provide more detail on how the school finance
reform proposal in this bill treats various funding streams.

|Table 1 - Funding Added to Total Revenue Limits or Base Funding |
|Budget Item |Program |
| |Unemployment Insurance RL Add-on - 15 year avg. |
| |PERS Adjustment Add-on - 15 year avg. |
|6110-108-000|Supplemental School Counseling Program |
|1 | |
|6110-111-000|Home to School Transportation (except Special Ed) |
|1 | |
|6110-122-000|Specialized Secondary Program Grants |
|1 | |
|6110-124-000|Gifted and Talented Program |
|1 | |
|6110-181-000|Educational Technology - CTAP |
|1 | |

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|6110-187-000|Emergency Repair Program |
|1 | |
|6110-188-000|Deferred Maintenance |
|1 | |
|6110-189-000|Instructional Materials Block Grant |
|1 | |
|6110-190-000|Community Day Schools|
|1 | |
|6110-195-000|National Board Certification Incentives (excluding |
|1 |funds for prior awards) |
|6110-198-000|California School Age Families Education (CalSAFE) |
|1 | |
|6110-204-000|California High School Exit Exam-Instructional |
|1 |Support and Services |
|6110-208-000|Civic Education |
|1 | |
|6110-209-000|Teacher Dismissal Apportionment|
|1 | |
|6110-228-000|School Safety Block Grant (8-12) |
|1 | |
|6110-232-000|Class Size Reduction (9th Grade) |
|1 | |
|6110-240-000|Advanced Placement and International Baccalaureate |
|1 |Programs |
|6110-243-000|Pupil Retention Block Grant |
|1 | |
|6110-247-000|School and Library Improvement Block Grant |
|1 | |
|6110-248-000|School Safety Consolidated Competitive Grants |
|1 | |

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|6110-265-000|Arts and Music Block Grant |
|1 | |
|6110-268-000|Child Oral Health Assessments |
|1 | |
|6110-156-000|Adult Education - Schedule (1) |
|1 | |

| Table 2 - Funding added to the Targeted Pupil Equity Grant |
|Budget Item |Program |
|6110-104-000|Supplemental Instruction (Summer School) |
|1 | |
|6110-128-000|Economic Impact Aid |
|1 | |
|6110-150-000|American Indian Early Childhood Education Centers |
|1 | |
|6110-156-000|Adult Education Schedule (2) & (3) |
|1 | |
|6110-211-000|Charter School Categorical Block Grant |
|1 |(proportional to T programs) |
|6110-212-000|New School Categorical Funding (proportional to T |
|1 |programs) |
|6110-227-000|Community-Based English Tutoring Program |
|1 | |
|6110-246-000|Targeted Instructional Improvement Block Grant |
|1 | |

| Table 3 - Funding added to the Quality Instruction Grant |

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|Budget Item |Program |
|6110-137-000|Mathematics and Reading Professional Development |
|1 |Program |
|6110-144-000|Administrator Training Program |
|1 | |
|6110-193-000|Bilingual Teacher Training Assistance Program - |
|1 |Schedule (1) |
|6110-193-000|Teacher Peer Review - Schedule (2) |
|1 | |
|6110-234-000|Class Size Reduction (K-3) |
|1 | |
|6110-244-000|Teacher Credentialing Block Grant |
|1 | |
|6110-245-000|Professional Development Block Grant |
|1 | |
|6110-260-000|Physical Education Teacher Incentive Grants |
|1 | |
|6110-267-000|Certificated Staff Mentoring |
|1 | |

This bill also requires the SPI to make recommendations for the
modification of the state's existing fiscal systems to support
more comprehensive school-level financial reporting. There are
clear benefits to school-level fiscal reporting - many related
to increased transparency and sensitivity to possible
intra-district funding and service inequities. In addition,
school-level financial data reveals the effectiveness of
expenditures at the intended point of impact - the school and
classroom. School-level financial information would serve a
variety of audiences, including the general public, education
researchers, school administrators, other district and school
employees (e.g., program coordinators, classroom teachers or
non-instructional employees), local governing boards, the
Legislature, and investors and creditors (e.g., bondholders and

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prospective bondholders, commercial banks, other creditors,
vendors). According to a report from the National Center for
Educational Statistics, by 2001, 44 states had begun regulating
the financial reporting of school districts. Of these, 20
states had mandated some type of school-level financial or
budget reporting.

There are also numerous technical, administrative, accounting,
and information technology issues that would have to be
addressed by the SPI's recommendations before the Legislature
could act on those recommendations. The state's SACS provides
all California school districts with a uniform and comprehensive
system of accounts that districts are required to use to
categorize each revenue and expenditure. SACS, along with
guidance in California School Accounting Manual and from the
Governmental Accounting Standards Board, form the basis for
school district accounting and financial reporting in
California. Within SACS, school-level data can be added to the
district's financial analyses; however, districts currently have
flexibility in the extent to and manner in which they use the
system to reflect school-level information. Since school
districts have different levels of interest and expertise in
terms of going beyond what is required in SACS and district
financial reports, there may be a loss in uniformity in those
school-level reports if compared across districts.

According to the author, "A simpler and more transparent system
is needed in order to support accountability for increased
success for all students. One step toward improving the
transparency of the current system is to implement school-level
reports on revenue and expenditures to facilitate easy
comparisons across schools and districts, including comparisons
of school, district, and statewide demographics and academic
performance, and data on program-level expenditures."

Previous legislation : AB 2335 (Brownley), held in the Senate
Rules Committee in 2010, would have required the SPI to make
recommendations on modifying the format and requirements on
school district accounting in order to support school-level
financial reporting. AB 8 (Brownley), vetoed by the Governor in
2009, would have convened a working group to make findings and
recommendations regarding the restructuring of California's
education finance system, including changes necessary to support
school-level financial reporting. AB 2159 (Brownley), held in
the Senate Rules Committee in 2008, would have established a

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commission to develop a plan for reforming the school finance
system. AB 851 (Brownley), Chapter 374, Statutes of 2009,
consolidates four revenue limit add-ons into two fixed
adjustments to be included in each district's total revenue
limit funding, commencing with the 2010-11 fiscal year. AB 599
(Mullin), vetoed in 2008, was substantially similar to AB 851,
except that it also included longer day-longer year incentive
funding in the fixed adjustment that receives the annual COLA.
AB 60 (Coto), held in the Assembly Appropriations Committee in
2009, proposed a study of the weights that would be necessary to
implement a weighted-student funding approach. AB 2394 (Coto),
held in the Assembly Appropriations Committee in 2008, was
substantially similar to the current AB 60. AB 586 (Coto), held
in the Assembly Appropriations Committee in 2008, would have
stated Legislative intent to replace the funding mechanisms for
kindergarten through twelfth grade education with a weighted
student funding formula. AB 2890 (Duvall), failed in the
Assembly Education Committee in 2008, and AB 2933 (Committee on
Education), held in the Assembly Education Committee in 2008,
would have consolidated numerous K-12 education categorical
funding programs into several clustered categorical block grants
effective beginning in the 2008-09 fiscal year. A number of
additional bills have made proposals to reform or equalize
revenue limits, or to consolidate categorical funding: AB 2531
(Mullin), vetoed in 2006; AB 60 (Nunez), held in the Assembly
Appropriations Committee in 2005; SB 1510 (Alpert), held on the
Assembly Floor in 2004; AB 2153 (Daucher), held in the Assembly
Appropriations Committee in 2004. AB 825 (Firebaugh), Chapter
871, Statutes of 2004, places 26 historical categorical programs
into six block grants. SB 512 (Committee on Education), Chapter
677, Statutes of 2005, changed the due date for annual financial
reports from September 15 to October 15. AB 1578 (Migden),
Chapter 299, Statutes of 1997, in Section 39, targeted funds to
be used exclusively to develop and implement SACS.



American Civil Liberties Union (prior version)
California State PTA (prior version)
Children Now


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None on File

Analysis Prepared by
: Gerald Shelton / ED. / (916) 319-2087